Publication: Informal Financial Markets and Financial Intermediation in Four African Countries
Date
1997-01
ISSN
Published
1997-01
Author(s)
Aryeetey, Ernest
Hettige, Hemamala
Nissanke, Machiko
Steel, William
Abstract
A study of both informal and formal
financial markets in Ghana, Malawi, Nigeria and Tanzania,
Financial Market Fragmentation and Reform in Sub-Saharan
Africa, shows that informal institutions use specialized
methods to serve broad segments of the population that lack
access to banks. Although they have responded positively in
a liberalized environment, fragmentation into isolated
market segments persists. Greater efforts are needed to
integrate informal institutions into financial development
strategies. The study investigated structural problems such
as imperfect information and costly contract enforcement and
institutional weaknesses in banking systems and the legal
framework that cause wide differences across lenders in the
costs of screening, monitoring and enforcing loans. Poor
information systems in low-income countries raise the cost
to formal institutions of acquiring information on any but
the largest clients. In contrast, informal agents utilize
personal relationships, social sanctions and various
collateral substitutes to serve market segments that remain
beyond the reach of formal banks.
Citation
“Aryeetey, Ernest; Hettige, Hemamala; Nissanke, Machiko; Steel, William. 1997. Informal Financial Markets and Financial Intermediation in Four African Countries. Africa Region Findings & Good Practice Infobriefs; No. 79. © http://openknowledge.worldbank.org/entities/publication/39b70e89-3550-5cfd-a971-6adfa4e806b2 License: CC BY 3.0 IGO.”